Here's what you need to know about home office claims for tax time

Now more than ever, our homes are our sanctuaries, but for many they have become a place of work, too. Australians have been forced into isolation amid the COVID-19 crisis, with many now assuming their workplace roles from the comfort and safety of their living rooms.

The explosion of working-from-home arrangements, means employees now have extra expenses to consider. But what receipts should you be saving for tax time?

Image: Bench accounting

Before you race out and purchase the latest tech gadgets, the National Tax and Accountants’ Association is offering some sage advice for those seeking to claim some of their home office costs as tax deductions.

NTAA spokesman, Andrew Gardiner, says items claimed must relate directly to the work you do from home, during the COVID-19 pandemic, and must be drawn from two main areas – running costs and office-type claims, such as the phone and internet.

“In our tax system, the entitlement to the deduction in both cases is fairly straightforward – if you’re working from home then a deduction is available,” Gardiner says.

“The problem we have, however, relates to documentation and the ability to substantiate the expense.”

There are three ways of claiming:

1.     New “shortcut” method

The Australian Taxation Office (ATO) recently announced new arrangements to help cater for the influx of employees working from home, under Coronavirus restrictions.

Under the new model, people can now claim a rate of 80 cents per hour worked at home for all running expenses (including things like phone and internet), with multiple people living in the same house each able to claim this new rate. The previous requirement that you needed to have a dedicated workspace at home has now been removed.

ATO Assistant Commissioner, Karen Foat, says the new shortcut method, which will initially apply from 1 March to 30 June 2020, will make it easier for those who are working from home for the first time.

“The shortcut method provides a rate of 80 cents per hour and will only require you to keep a record of the number of hours you have worked from home,” she says. “This recognises that many taxpayers are working from home for the first time and makes claiming a deduction much easier.”

2.     Fixed rate scheme

Under the ATO’s existing fixed rate scheme, claimants are entitled to a deduction of 52 cents for each hour spent working from home. This covers expenses like electricity, depreciation of furniture and furnishings, and the cost of repairs to home equipment, furniture and furnishings.

In addition, claimants can claim deductions for the work-related portions of other expenses, including: 

• Phone and internet costs.
• Home office equipment, including; computers, printers and  telephones. You can claim the full cost for items up to $300, or depreciation for items more than $300 in value.
• Other running expenses including computer consumables, such as printer paper, ink and stationery.

Records must be kept either of actual hours spent working from home or a four-week diary to show your usual pattern of working at home, which is then applied to the remainder of the year to determine your full deduction amount. 

3.     Claiming actual expenses

The third option allows workers to claim actual expenses, but they need to retain records indicating how much of their home is used for work purposes. They will also need to provide their workhours, to determine their claim, based on detailed analysis. If they shared expenses with other household members, those costs need to be apportioned.

Gardiner warns that this is often a time-consuming process and, in his experience, many people with the best of endeavours fall short because of the onerous record-keeping requirements.

“Very few people are going to maintain the meticulous details necessary, particularly to claim under the second method,” he says.

Image: Scott Graham

When it comes to phone and internet claims, employees working from home can claim a flat fee of $50 per taxpayer per year without detailed records.

“The problem is that many people are going to be working from home for a month, two months, in some cases three months or more and $50 is not going to come anywhere near close enough to the expense they are actually incurring,” says Gardiner.

Alternatively, he says, taxpayers can keep a four-week diary that records the total number of work calls as a percentage of all calls made. The same process can be undertaken for time devoted to work calls and total data downloaded for work purposes.

What about mortgage interest, rates and land taxes?

Gardiner adds, despite widespread misconceptions, employees are generally not able to claim occupancy expenses such as mortgage interest, rent, rates or land taxes if they are working from home.

“The law and ATO have made it clear that those circumstances are limited to where a room is really used as a place of business,” he says. “The classic example is a hairdresser who has part of the home for that purpose.”

“But if it is just an interim measure because of the coronavirus crisis, then by and large the answer would be no.”

The ATO reminds, to claim deductions, taxpayers must have spent the money themselves and not have been reimbursed. The claim must also be directly related to earning income and there must be a record to substantiate the claim.

The ATO will review these arrangements for the next financial year as the COVID-19 situation progresses.

Originally published on realestate.com.au ‘Here's what you need to know about home office claims for tax time’

Help claiming with myRAMS*

myRAMS makes getting started easy by putting your property’s interest summary and eStatements a few taps away. You can use your account statements to check deductible expenses against their receipts and double-check the interest you’ve earned from your savings accounts.

With your property’s interest summary, you can make eligible claims on your property, or report its income where required. To find your interest summary, simply log in to myRAMS and select Interest Summary under the Account tab, then select the account you would like to see the record for. Simply print or save your summary.

You can also access up to two years of home loan statements and up to seven years of deposit statements online. To switch to eStatements, simply login to myRAMS and select eStatements under the Account tab. Select the relevant account and hit save.

With myRAMS you can get tax sorted sooner.

Further information:

For more information on claiming tax deductions, including working from home expenses, visit the ATO website and seek tax advice and accounting advice.

Things you should know:

*Not available to companies or trusts. Internet and mobile access is available where software and devices are compatible.